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They're Back: Package Goods

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It's payback time.

That's the message the nation's consumer packaged-goods companies are hoping rings through loud and clear during this year's upfront. Once stalwarts of the networks' primetime lineups, packaged-goods marketers in recent years have been unceremoniously pushed out of the Top 5 upfront advertising categories. But if current market conditions hold, companies such as Procter & Gamble, Unilever and Kraft may be coming back to primetime in a big way.

Glimmers of interest in primetime already can be seen from executives such as Neutrogena president Michael McNamara. His company decreased ad spending by about 15 percent in 2000, but he expects Neutrogena to be "a major spender" this year. Still others are trying to scope out the market before making any overt indication of how they're going to act. (Although the upfront officially begins in May, when the networks start selling their fall lineups to advertisers, agency and network executives have continued the tradition of meeting unofficially since January.)

"It's taking longer to get a true reading of how the upfront marketplace will shake out," comments a media buyer for a Midwestern packaged-goods marketer, who requested anonymity. "It's always competitive, and no one likes to talk about it, but there's more discussion than usual this year about whether it makes sense to bid on primetime network advertising."

Some of those discussions seem to be focused on turning the tables on the networks. "The packaged-goods companies have been pushed out of the No. 1 slot in the last few years as the networks in particular saw fit to say, 'We don't need you guys as much; there are other companies with bigger ad budgets,'" says Allen Banks, executive media director at Saatchi & Saatchi, New York, whose client roster includes Procter & Gamble. "Well, guess what? The networks' tune may have changed, but the packaged-goods companies don't necessarily have to come to the dance."

Networks may find themselves suffering aftereffects from the party that raged for the last few years. "It's payback time, and advertisers and the networks both know it," says Liz Janneman, executive vp at Turner Entertainment Sales in New York, just one of the cable alternatives to network TV. "There are networks that really took advantage of the situation in the last several years and exploited the market. The people who recognized that this is a long-term business, who worked on building deals and building relationships and didn't scalp advertisers, aren't going to get pounded the way specific networks are that took advantage of these situations."

While networks were charging top dollar, packaged-goods marketers were discovering other media. Syndication and cable TV, as well as the Internet, were meeting their advertising needs as well as -- if not better than -- network TV. Packaged-goods marketers have learned a lot about their consumers and realize, Banks points out, that "they really don't need as much primetime as they have in the past."

"They have gone to other dayparts and have reduced their reliance on the network upfront," says Bob Igiel, president of broadcast at The Media Edge in New York. "This makes the upfront very interesting this year [for packaged-goods companies], since it certainly will not have the characteristics of the last couple of years, in which large rate increases went through and [inventory] moved quickly. But a soft market ... that doesn?t mean that suddenly network primetime meets their reach and frequency needs."

The falling out between packaged-goods companies and the nets dates back to 1997, when the Food and Drug Administration relaxed the rules governing how pharmaceutical marketers could use TV spots for direct-to-consumer prescription advertising. "That was huge, it was explosive," says Janneman of Turner Entertainment Sales. "It was the first time pharmaceutical marketers really used TV, and they shifted a tremendous amount of money into TV." Spending on TV ads for prescription drugs more than quadrupled, from $220 million in 1996 to $1.1 billion in 1999, according to Competitive Media Reporting and IMS Health. As the over-the-counter influx drove up unit pricing, packaged-goods companies were lost in the dust of the spending storm.

"We started to see significant price increases about five years ago, and not only was it driving up prices for everybody, it really hit the packaged-goods marketers hard," says Marc Goldstein, president of national broadcast and programming, WPP's Mindshare media unit, which handles Unilever?s $700 million U.S. TV-buying account.

"Packaged-goods companies had among the lowest CPMs over the years," he says. "Much of the TV media was formed on the ad budgets of P&G, [the former] General Foods and Johnson & Johnson. They were the backbone of the marketplace. They had a commanding presence, but it wasn?t enough when bigger spenders came into the upfront."

Along with the pharmaceutical marketers, other newcomers with fat wallets included automotives, entertainment and movie companies, financial services and retail chains such as Wal-Mart.

"There's a whole new category of advertiser -- Wal-Mart, Target and Home Depot -- that didn't exist on the national scene five to 10 years ago," Goldstein says. "Unlike the dot-coms, which I contend never played a significant role in upfront, these categories of advertisers aren't going away."

"The automotive marketers are still paying top price to be on the network primetime schedule, including, which I find amazing, the luxury automotive marketers, even though their target audience is very small," says Saatchi's Allen Banks. "The networks' best friend is the guy willing to spend more per unit rate than the last guy. There are some relationships and loyalty, but the networks, if they can get more for a particular unit, they're going to take it in a heartbeat, whether or not it comes from their longtime supporters."

And so P&G, Unilever, et al. must decide just how much they need the networks. "The networks definitely still have something to offer advertisers -- they still can accumulate ratings points and reach faster than any alternative," says Mel Berning, president of U.S. broadcast for MediaVest. "But they've also been charging a pretty steep premium for that reach, and that's made cable and syndication attractive alternatives."

Even if the networks' prices come down a bit this year, several factors may preclude heavy upfront buying. "The upfront will be soft because budgets and demand are down, down, down," says John Muszynski, executive vp and chief broadcast investment officer at Starcom in Chicago, whose clients include P&G, Kellogg and Kraft General Foods.

Though consumers don't altogether stop buying staples such as detergent, toothpaste and bathroom tissue in a downturn, the companies themselves are under increasing pressure to show more profits. And slashing ad spending is one major way to do that.

Also weighing heavily on marketers' upfront decisions are the pending writers and actors strikes, which would put the kibosh on the taping of new shows. Network ratings continue their slow decline, and that slide may well be accelerated by the strikes. ABC, NBC and CBS lost 10 percent in ratings during the five-month strike in 1988, ratings that never came back.

"A lot depends on what happens with the writers strike," says Harry Keeshan, executive vp at Creative Media, part of Omnicom Group's PhD media network. Omnicom oversees accounts including Anheuser-Busch, Pepsi and Tricon Global Restaurants. "It's all psychology at work here. It's partially stock market driven. But it's other issues too, and all of this combines to play into what advertisers feel comfortable with putting behind various marketing plans."

The key question media executives now are pondering is whether, given market conditions, an uncertain fall schedule and tight ad budgets, packaged-goods marketers will feel like spending their money during the upfront.

"The networks want to go back to the old reliable, like the packaged-goods companies, but given what [the marketers] have gone through in the last year or so, they certainly don't forget easily," says Keeshan. "This kind of market is more favorable for the packaged-goods companies, but it all has to do with delivering eyeballs where they need them."

Laurie Freeman is a freelance writer based in Minnesota.